Services will take us closer to the circular economy – but what kinds of services switch consumers on?

From the perspective of society in general, there is enormous pressure to transfer from a linear economic model to a circular economy. To generate economic growth, or even to maintain the status quo, we need to move towards a closed loop, where materials are recycled and their value is maintained or even increased. The key issue is the more efficient and smarter use of resources. This is possible through innovative business models and the wise use of technology. Since the circular economy places consumers at the centre, the choices they make and the actions they take will be increasingly important. For this reason, understanding consumers and their behaviour will play a key role in how companies can succeed in developing new business models.

Would you rent a sofa, washing machine or clothes?

Offering services rather than owning products an efficient way of ensuring the recycling of materials and the maintenance of their value. However, the transfer from owning things to buying services is a huge step for consumers. In group discussions arranged as part of the AARRE project, we explored the attitudes of consumers towards various service concepts, whereby commodities such as a sofa, washing machine or clothes were provided as a service. When transferring from selling products to providing them as a service, it is critical to understand how consumers feel about ownership. The discussions revealed that, particularly with respect to objects – such as sofas – connected to key events or to which people become emotionally attached, ownership is important. Different life situations may also have an influence on the kinds of choices people make. For a student, renting a washing machine or sofa may be a way of making life easier.

Consumers may have a very personal attachment to certain technical products, such as cars, while being far less emotionally attached to appliances such as washing machines. In addition, providing such products as a service would enable improved technical features and higher quality. For these reasons, the people who participated in the discussions were more interested in a washing machine than a sofa or clothes as a service. Attractive added value can be offered to consumers by using technology to make machines smart, bringing benefits such as proactive maintenance or more efficient use. Leasing instead of owning can also lower the level of risk for consumers, eliminating the costs due to breakages, for example. Consumers were also interested in eliminating the risk associated with clothes purchases, by leasing.

All three models focused on the group discussions – renting/leasing a sofa, a washing machine or clothes – divided consumers into two groups. Some considered the opportunity very interesting, while others did not, which was summed up very well by one consumer: “I’m not an owner type of person.” The clearest obstacles were doubt that a leasing model could be implemented in a cost-effective manner, or the service acquisition model seeming odd and unnecessary. On the other hand, the clearest benefits associated with leasing were related to higher quality, flexibility, the opportunity to change the product, and lower risk and commitment.

Towards innovative business models

The key issue would be to find the right and most suitable solution for each consumer. Research and practice show that new services are adopted more easily if they have features in common with former services or products and do not require a sudden major change. Changing people’s habits is the key factor when seeking a long-term impact. Major changes in behaviour take time and occur gradually, one step at a time. The group discussions we had with consumers revealed that some are ready to adopt solution-centric service business models, such as buying furniture as a service. On the other hand, some still want to own things, in which case adding a service to the core product will help to close the circular economy loop.

To ensure that circular economy business models spread, we need to face certain facts; for example, not all of us are yet ready to buy services instead of things – particularly if they are provided by another consumer. We therefore need new, innovative business models that take various customer preferences and practices into account. In any case, the journey towards the proliferation of result-centric service business models has already begun.

Headed by VTT, the AARRE project is creating new, user-driven circular economy business activities. This project is a networked research project (2015–2017) being undertaken in partnership with the business sector, with Tekes as the main funder. In addition to VTT, the other research organisations involved include the Finnish Environment Institute (SYKE) and the Consumer Society Research Centre of the University of Helsinki.